You just settled a big personal injury case for your client. You feel great about getting your client the compensation that they deserve. You then realize the tax-burden on your contingency fee. How can you mitigate and ease the tax-burden on that contingency fee ? An attorney fee structured settlement.
Q: Can my fees be structured even if my client elects not to structure any other portion of the settlement?
A: Yes. Years ago you could not. Now most structure companies will accept “stand alone” attorney fee structures.
Q: What companies are my structured settlement placed with ?
A: I only quote/place business with companies that have an AM Best financial strength rating of A (Excellent) or A+, A++ (Superior). Some companies are better suited for short duration payments, while others may be favorable for lump sum, long-term or lifetime payment options. Allow me to sort out the guess work.
Q: I do not want to structure all of my fees – can I structure just a portion of them ?
A: Yes. You can choose the amount of your fees that you desire to structure. Some of my client take a certain portion (x%) of each settlement contingency fee in a year and apply it to their structure portfolio. Other attorneys decide to structure every 3rd case that they settle. This keeps a consistent funding to build up their structured attorney fee portfolio.
Q: What payment options are available?
A: You may start the payments immediately or defer them up to (20) years. Payments can be made monthly, quarterly, semi-annual, annual, lump sum or a combination of these. You can also opt for a lifetime payment option. Time the structured payments around the time that a child may be in college to assist with tuition
Q: What are some reasons why one would want to structure their attorney fee?
A: Tax deferral on a large contingency fee so that you do not get hit with large tax hit in the year the settlement/fee is received. Mitigate your tax liability by spreading the taxable income over a period of time that you decide, rather than paying it all at once.
Smooth out cash flow to the firm. Avoid the roller coaster income that a personal injury practice can often experience.
Provide future guaranteed cash flow to the firm for such things as office overhead, payroll, employee benefits, insurance, etc.
Tax-deferred, guaranteed predictable income to supplement your retirement portfolio, when you may be in a lower marginal tax bracket and taxed less on your earnings.
Q: What documents are required for an Attorney Fee Structure?
A: The structured settlement companies require a Hold Harmless Agreement. In addition, there is necessary language that is contained within the Settlement/Release Agreement along with the Uniform Qualified Assignment document.
Q: Do I have to structure my fee with the structure company that the defendant’s insurer is promoting ? How do I know that it is offering the best payout ?
A: You do not always have to place the attorney fee structure with the structure/life company that the defendant’s insurer is promoting. As your structured settlement consultant, I can provide you with all of your structure investment options and advise which companies will provide the highest payout with the balance being placed with a financially strong, highly rated company.
Q: When should the structured settlement be set up ?
A: You should contact me before/during the settlement negotiations. You should not take receipt of any of the settlement funds as this would be considered constructive receipt and void the favorable tax-treatment of the structure. Do not sign any release documents until consulting with me as your structured settlement consultant. All this is done in consideration of avoiding “constructive receipt”, which would void the favorable tax status of the structured settlement.
Q: Can I name a beneficiary ?
A: Yes, you can name a beneficiary. In the event of your death, the structured payments will continue to your named beneficiary on a tax deferred basis.
Q: Do I need my client’s permission to structure my fee ?
A: One recommendation I have for future cases, is on your contingency fee / retainer agreement that your clients review and sign – – put language in the paragraph that discusses how you will be paid and that you have a right to structure your contingency fees as part of any settlement.
Q: Once set up, what are the fees associated with an Attorney Fee Structured Settlement arrangement ?
A: Unlike the majority of other investment options, there are NO ongoing money management fees, which means the interest that you earn is yours and there are no quarterly/annual money management fees that may diminish your return.
Q: Are there any annual contribution limits similar to the restrictions on 401K plans ?
A: No. You may structure and defer as much as you desire. You are not capped by annual limits like other pension/401k-type plans.
Q: Can my payments be electronically deposited into my bank account ?
A: Certainly. This is the preferred method of the structure companies making payments.
Q: Are there any money management fees ?
A: Unlike nearly all other investment alternatives, once a structure is set up, there are no money management fees. This allows more of your money to earn interest for you.
Please contact me with any additional questions that you may have. rmaguire@epssg.com or 888-377-0330, ext 2.
